In short
- Strategy’s Stretch (STRC) may be volatile, but according to Benchmark-StoneX’s Mark Palmer, it’s far from the stablecoin that underpinned Terra’s ecosystem.
- The Bitcoin buying company’s preferred shares are designed to trade at a certain level, but are not capable of “decoupling” in a technical sense, he wrote.
- STRC fell to $82.53 last week and on Monday recovered some losses to close around $88.65.
Strategy’s Stretch (STRC) is facing remarkable pressurebut it’s nothing like the stablecoin that brought crypto to its knees in 2022, according to Benchmark-StoneX’s Mark Palmer.
Although the Bitcoin buying company’s preferred stock brought back painful memories as it drifted toward it record lows Last week, comparisons between the system and Terra’s collapsed ecosystem remain “fundamentally misleading,” the investment bank’s analyst shared in a note Monday.
Palmer argued that STRC’s weakness has “sparked alarmist commentary on social media,” overlooking core differences between the dividend-paying product and two tokens, TerraUSD and LUNA. deleted A $40 billion market cap that plummeted years ago.
“STRC is not a stablecoin,” Palmer underlined. “It is not supported by an algorithmic arbitrage mechanism, and it does not rely on trust in a reflexive token structure.”
Most stablecoins are backed by a combination of cash and US Treasuries, but TerraUSD tried to break that pattern without any hard reserves, and instead relied on a new way “mint-and-burn” framework with its sister token, LUNA, to artificially maintain its peg.
STRC, on the other hand, is indirectly supported by Strategy’s Bitcoin holdings. The Tysons Corner, Virginia-based company announced Monday that it now owns 847,363 Bitcoin, worth $54.5 billion, with the digital assets changing hands around $64,400.
As Terra’s ecosystem unfolded, TerraUSD “decoupled,” losing parity with the US dollar as investors quickly lost confidence in the protocol’s ability to remain stable. The project’s Anchor Protocol was known for offering a 20% annual return on deposits.
The same language was used regarding STRC’s weakness on Thursday, when the product, which currently offers an 11.5% annual dividend, fell to $82.53. On Monday, the preferred stock closed flat at $88.65, or about 11.3% below its $100 par value, according to Yahoo Finance.
STRC, Palmer noted, is designed to trade around $100, but its price has been cyclical since its inception less than a year ago. When STRC trades at or above that threshold, Strategy issues more shares and uses the proceeds to buy more Bitcoin.
The product has been hovering below its $100 face value for several weeks, and some analysts now expect the company will try to increase the product’s dividend rate in an effort to support its recovery to that level.
There are also other levers that Strategy can use. For example, the Bitcoin buying company has been raising cash for three consecutive weeks, replenishing its USD reserve as a way to communicate to preferred shareholders that dividend payments will keep flowing.
When STRC trades below the $100 mark, its ability to buy Bitcoin may be limited, but that doesn’t mean there is a fundamental problem, Palmer wrote.
“There is a meaningful difference between the claim that Strategy’s favored equity financing engine has become less efficient,” he said, “and the claim that the company’s overall model is broken, as some detractors have suggested.”
The investment bank reaffirmed its $570 price target for Strategy. The forecast is well above the multi-year high of $457 that the company’s shares rose to in October.
On Monday, Strategy shares fell 2.8% to $109. The performance added to a negative streak, with the company’s share price falling for the fifth straight trading day.
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